-16.08(-0.22%)

+1.84(+0.12%)

-0.61(-0.99%)

-6.30(-0.47%)

-0.18(-1.10%)

-0.00(-0.04%)

Time to Sell the Steel ETF?

Although stocks have broadly come back in the first quarter of 2013, some sectors have had trouble keeping up. This is especially true in the commodity space, and particularly in the commodity producer segment.

Investors have seen incredible weakness in this corner of the investing world thanks to a strong dollar, uncertain demand from international markets, and a broad push to other segments of the market. Plus, these producers usually act as leveraged plays on the underlying commodities, so when commodities are slumping, these firms are truly hurting (read Time to Sell this Commodity ETF?).

Investors in the Steel ETF (SLX) are getting pretty familiar with this trend in 2013, continuing the rough time that many have seen in this corner of the ETF world. The product is now down double digits in 2013 and could be facing more weakness ahead as well.

That is because this underperforming fund recently saw some bearishness in some key simple moving averages, with short-term figures falling below longer term ones. This crossover suggests that the short term trend is decidedly bearish, and that more pain could be ahead for this ETF in the future.

Investors should also note that while we do not possess a Zacks ETF Rank on steel funds at this time, we can look to both the mining and steel segments in the stock Zacks Rank, which are the primary components of SLX, for some clues. Both of these aren’t pretty though, as the miscellaneous mining sector is currently ranked in the bottom 25%, while the steel segment is in the bottom 20% (see Steel ETFs Head-to-Head).

This suggests that, at least from an earnings estimate revision perspective, the steel ETF could be facing some more trouble in the future. And with the broad macro troubles afflicting the sector, it is easy to see why the space might be in for more of a rough patch going forward.

Bottom Line

It is hard to be bullish on the steel ETF at this point in time. Nothing appears to be working out for the ETF as weakness is signaled by fundamentals, the Zacks Rank, and even from a technical perspective as well (see 5 Sector ETFs Surging to Start 2013).

As a result, it is probably better for most investors to avoid this segment for the time being, at least until the outlook starts to improve for steel. Better to focus in on surging industrial sectors and less dollar-sensitive segments, until sentiment turns on this troubled sector.